Croatia yesterday signed a treaty to join the European Union in 2013, a bittersweet milestone as the bloc prepares to take on board a sluggish economy it will have to drag along at the time of its worst crisis ever.

The EU hailed the signing as a historic day for the ex-communist country, but the Croatian government’s decade-long effort could turn out to have been a giant waste of time if the union’s 27 countries fail to solve a financial crisis that threatens to unravel the 53-year-old project to integrate the continent.

The union is battling to avoid being dragged down by members struggling with giant debts over the long term. Croatia’s expected entry in 18 months will not help matters: It has been hit hard by the global downturn and has been taking longer than its Balkan neighbours to come out of recession. It has been hoping EU membership will help boost its economy.

The country of 4.2 million is dealing with unemployment at around 17% and a budget gap projected at 6.2% of Gross Domestic Product. The newly ousted conservative government has been reluctant to undertake serious structural and fiscal reform and fully curb corruption. Its credit rating was reduced a year ago by Standard & Poor’s, which cited a “deteriorated fiscal position and continuously weak” external financing.

The signing came following a marathon all-night session at an emergency summit at which most EU leaders decided to back a new treaty with strict oversight over national budgets, trying to convince markets that the euro has a future.

Germany and France were unable to persuade all 27 European Union countries to agree to the treaty changes, with only Britain refusing to give up some powers.

“It’s very, very odd for someone to join a club the night after the worst bust-up in that club’s history,” said Nigel Farage, a staunchly anti-EU British member of the European Parliament.

EU president Herman Van Rompuy said Croatia will be an “active observer” in all EU forums until it becomes a full member 18 months from now. Its membership must still be ratified by the legislatures of the bloc’s 27 member nations.

Croatia’s entry talks lasted seven years and were held up repeatedly due to territorial disputes with neighbouring Slovenia and demands that it arrests remaining war crimes suspects.

“Today Croatia is entering Europe, but more importantly Europe is entering Croatia,” Croatian President Ivo Josipovic told the heads of government of all 27 members. He said Croatia’s progress showed that the EU was determined to eventually accept all Balkan countries into the bloc.

Croatia will become the second nation from the former Yugoslavia to join the EU after Slovenia, which became a member in 2004. All other countries that emerged from the Yugoslav federation – Bosnia, Kosovo, Macedonia, Montenegro and Serbia, as well as neighbouring Albania – are also seeking membership.

Van Rompuy said EU leaders had decided to postpone making Serbia a candidate for the bloc until their next summit.

“We will continue to assess the situation... with the clear aim to grant Serbia the status of candidate nation,” Van Rompuy said.

He urged Belgrade to normalise relations with its former province of Kosovo, which declared independence in 2008.

Serbia had been widely expected to gain candidate status after extraditing the last of several dozen war crimes suspects earlier this year. But a recent outbreak of violence in northern Kosovo, where hard-liners among the Serb minority have blocked roads and clashed with Nato peacekeepers, appears to have put that on hold.

“EU leaders are just too busy with the euro crisis to waste too much time discussing Serbia’s status,” an official said on condition of anonymity.

Candidate status is symbolically and politically important for Serbia and its pro-EU president, Boris Tadic. But in reality, it is just a step toward accession negotiations which can drag on for years, as in Croatia’s case.

Van Rompuy also said EU leaders had decided that Montenegro would open accession negotiations next June on condition that it continues a crackdown on organised crime and corruption. (AP)